CITIZENS FINANCIAL SERVICES INC - FORM 8-K - EX-99.1 - PRESS RELEASE ANNOUNCING FOURTH QUARTER 2018 EARNINGS

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8-K - FOURTH QUARTER 2018 8-K - CITIZENS FINANCIAL SERVICES INC	fourthquarter2018.htm

First Citizens Community Bank
15 S. Main Street

Mansfield, PA 16933

Contact: Kathleen Campbell, Marketing Director

570-662-0422

570-662-8512 (fax)

citizens financial services, inc. reports unaudited full year and fourth quarter 2018 financial results

MANSFIELD, PENNSYLVANIA— January 25, 2019 – Citizens Financial Services, Inc. (OTC Pink: CZFS), parent company of First Citizens Community Bank, released today its unaudited consolidated financial results for the three months and year ended December 31, 2018.

Highlights

Net income was $18.0 million for 2018, which is 38.5% higher than 2017’s net income. The increase in net income is due to an increase in net interest income and the effects of the Tax Cuts and Jobs Act, enacted on December 22, 2017, which lowered the federal corporate income tax rate from 35% to 21% effective January 1, 2018. The effective tax rate for 2018 was 15.9% compared to 31.6% for 2017. The effective tax rate for 2017 was impacted by a one-time adjustment to our net deferred taxes of $1.5 that was charged to income tax expense as a result of the Tax Cuts and Jobs Act. The effective tax rate for 2017, excluding the adjustment would have been 23.6%.

Net income was $4.5 million for the three months ended December 31, 2018, which is 73.4% higher than the net income for 2017’s comparable period. The effective tax rate for the three months ended December 31, 2018 was 15.8% compared to 53.0% in the comparable period in 2017 due to the Tax Cuts and Jobs Act. If you exclude the one-time adjustment previously mentioned the effective tax rate for the three months ended December 31, 2017 would have been 25.3%.

·	Net interest income before the provision for loan losses was $47.2 million for the year ended December 31, 2018, which was an increase of $4.9 million, or 11.7%, compared to 2017.

·	Net loan growth totaled $79.7 million in 2018, or 8.1%. Growth for 2018 was impacted by the pay-off of approximately $15.0 million of participation loans, the proceeds of which were utilized to fund organic growth.

·	Return on average equity for the three months (annualized) and the year ended December 31, 2018 was 12.65% and 13.00%, respectively, compared to 7.82% and 10.04% for the three months (annualized) and the year ended December 31, 2017, respectively.

Return on average tangible equity for the three months (annualized) and the year ended December 31, 2018 was 15.33% and 15.87%, respectively, compared to 9.49% and 12.22% for the three months (annualized) and the year ended December 31, 2017, respectively. (See reconciliation of GAAP and Non-GAAP measures at the end of the press release.)

·	Return on average assets for the three months (annualized) and the year ended December 31, 2018 was 1.27% and 1.29%, respectively, compared to 0.80% and 1.03% for the three months (annualized and the year ended December 31, 2017, respectively.

2018 Compared to 2017

For 2018, net income totaled $18,034,000 compared to net income of $13,025,000 for 2017, an increase of $5,009,000 or 38.5%. Basic earnings per share of $5.14 for 2018 compares to $3.70 for 2017. The Tax Cut and Jobs Act had both a positive impact on 2018’s financial results and had a detrimental impact on 2017 earnings.

Net interest income before the provision for loan loss for 2018 totaled $47,184,000 compared to $42,254,000 for 2017, resulting in an increase of $4,930,000, or 11.7%. Average interest earning assets increased $143.2 million in 2018 compared to last year. Average loans increased $160.9 million while average investment securities decreased $22.2 million. The tax effected net interest margin for 2018 was 3.66% compared to 3.80% for 2017. A significant portion of the margin decrease from 2017 to 2018 is attributable to the change in the Federal corporate tax rate from 35% to 21%.

·	The provision for loan losses for 2018 was $1,925,000 compared to $2,540,000 for 2017, a decrease of $615,000. The decreased provision primarily reflects the lower level of loan growth experienced during 2018 compared to 2017.

Total non-interest income was $7,735,000 for 2018, which is $921,000 less than non-interest income of $8,656,000 for 2017. Decreases in security gains as a result of selling the majority of the Company’s equity investments in 2017 and gains on loans sold were offset by increases in service charge income and brokerage and insurance commissions.

Total non-interest expenses for 2018 totaled $31,557,000 compared to $29,314,000 for the same period last year, which is an increase of $2,243,000, or 7.7%. Salaries and benefits increased $1,439,000 primarily due to merit increases and branch and loan production office expansion in our central and south central market areas. Occupancy expenses increased as a result of branch expansions. Professional fees increased as a result of an increase in legal fees. The tax effected efficiency ratio for 2018 was 55.04% compared to 54.82% for 2017 and was impacted by the change in the Federal corporate tax rate from 35% to 21%.

The provision for income taxes decreased $2,628,000 when comparing 2018 to 2017. Of this decrease, $1,531,000 is attributable to the Tax Cuts and Jobs Act and the immediate write-down of deferred tax assets due to the change in the corporate tax rate that occurred in 2017. The remaining decrease is attributable to the lowered Federal corporate tax rate from 35% to 21%.

Fourth Quarter of 2018 Compared to the Fourth Quarter of 2017

For the three months ended December 31, 2018, net income totaled $4,515,000 which compares to net income of $2,604,000 for the comparable period in 2017, an increase of $1,911,000 or 73.4%. Net income for the fourth quarter of 2017 was significantly impacted by the write-down of net deferred tax assets associated with the Tax Cuts and Jobs Act. Basic earnings per share of $1.29 for three months ended December 31, 2018 compares to $0.74 for the 2017 comparable period. Annualized return on equity for the three months ended December 31, 2018 and 2017 was 12.65% and 7.82%, respectively, while annualized return on assets was 1.27% and 0.80%, respectively.

Net interest income before the provision for loan loss for the three months ended December 31, 2018 totaled $12,243,000 compared to $11,236,000 for the three months ended December 31, 2017, resulting in an increase of $1,007,000, or 9.0%. Average interest earning assets increased $121.6 million for the three months ended December 31, 2018 compared to the same period last year. Average loans increased $132.8 million while average investment securities decreased $16.9 million. The tax effected net interest margin for the three months ended December 31, 2018 was 3.73% compared to 3.88% for the same period last year, which was impacted by the change in tax rates between periods.

The provision for loan losses for the three months ended December 31, 2018 was $625,000 compared to $800,000 for the comparable period in 2017, a decrease of $175,000. The decreased provision primarily reflects the lower net loan growth experienced during the three months of 2018 compared to the same period in 2017.

Total non-interest income was $1,977,000 for the three months ended December 31, 2018, which is $835,000 less than the comparable period last year. Decreases in security gains as a result of selling the majority of the Company’s equity investments in the fourth quarter of 2017 and gains on loans sold were offset by increases in service charge income and brokerage and insurance commissions.

Total non-interest expenses for the three months ended December 31, 2018 totaled $8,235,000 compared to $7,710,000 for the same period last year, which is an increase of $525,000, or 6.8%. Salaries and benefits increased $218,000 primarily due to the increased costs associated with merit increases and branch and loan production office expansion. Professional fees increased as a result of an increase in legal fees.

The provision for income taxes decreased $2,089,000 when comparing the three months ended December 31, 2018 to the same period in 2017. A portion of the decrease, $1,531,000 is attributable to the Tax Cuts and Jobs Act and the immediate write-down of deferred tax assets due to the change in the Federal corporate tax rate that occurred in the fourth quarter of 2017. The remaining decrease is attributable to the lowered Federal corporate tax rate from 35% to 21%.

Balance Sheet and Other Information:

·	At December 31, 2018, total assets were $1.43 billion, compared to $1.36 billion at December 31, 2017. The loan to deposit ratio as of December 31, 2018 was 91.29% compared to 90.55% as of December 31, 2017.

·	Available for sale securities of $241.0 million at December 31, 2018 decreased $13.8 million from December 31, 2017. Interest bearing time deposits with other banks increased $5.2 million to $15.5 million at December 31, 2018.

Net loans as of December 31, 2018 totaled $1.07 billion and increased $79.7 million from December 31, 2017, as we continue to benefit from our expansions into the central and southcentral Pennsylvania markets. The growth in 2018 was in commercial, agricultural and constructionrelationships, which continues the trend from 2017.

The allowance for loan losses totaled $12,884,000 at December 30, 2018 which is an increase of $1,694,000 from December 31, 2017. The increase is due to recording a provision for loan losses of $1,925,000 and recoveries of $134,000, offset by charge-offs of $365,000. Net charge-offs as a percent of total loans for 2018 was .02%. The allowance as a percent of total loans was 1.19% as of December 31, 2018 compared to 1.12% as of December 31, 2017. For the year, non-performing assets increased $2.5 million.

Deposits increased $80.2 million from December 31, 2017, to $1.19 billion at December 31, 2018. We issued $20.0 million in brokered certificates of deposit in the third quarter of 2018, which contributed to a portion of the deposit growth. The remaining growth was primarily attributable to increases in municipal and business deposits. Borrowed funds decreased $23.5 million from December 31, 2017 to $91.2 million at December 31, 2018 as a result of the growth in deposits.

Stockholders’ equity totaled $139.2 million at December 31, 2018, compared to $129.0 million at December 31, 2017, an increase of $10,218,000. The increase was attributable to net income of $18.0 million for 2016, offset by cash dividends of $6.1 million and net treasury stock activity of $1,029,000. As a result of changes in interest rates impacting the fair value of investment securities, the unrealized loss on available for sale investment securities, net of tax, increased $706,000 from December 31, 2017.

Dividend Declared

On December 4, 2018, the Board of Directors declared a cash dividend of $0.440 per share, which was paid on December 28, 2018 to shareholders of record at the close of business on December 14, 2018. The quarterly cash dividend is an increase of 3.3% over the regular cash dividend of $0.426 per share declared one year ago, as adjusted for the 1% stock dividend declared in June 2018.

Citizens Financial Services, Inc. has nearly 1,700 shareholders, the majority of whom reside in markets where its offices are located.

Note: This press release may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are not historical facts; rather, they are statements based on the Company's current expectations regarding its business strategies and their intended results and its future performance. Forward-looking statements are preceded by terms such as "expects," "believes," "anticipates," "intends" and similar expressions. Forward-looking statements are not guarantees of future performance. Numerous risks and uncertainties could cause or contribute to the Company's actual results, performance and achievements to be materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to these differences include, without limitation, changes in general economic conditions, including changes in market interest rates and changes in monetary and fiscal policies of the federal government; legislative and regulatory changes; and other factors disclosed periodically in the Company's filings with the Securities and Exchange Commission. Because of the risks and uncertainties inherent in forward-looking statements, readers are cautioned not to place undue reliance on them, whether included in this press release or made elsewhere periodically by the Company or on its behalf. The Company assumes no obligation to update any forward-looking statements except as may be required by applicable law or regulation.

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS
(UNAUDITED)
(Dollars in thousands, except per share data)
	As of or For The						As of or For The
	Three Months Ended						Year Ended
	December 31						December 31
	2018			2017			2018			2017
Income and Performance Ratios
Net Income	$	4,515		$	2,604		$	18,034		$	13,025
Return on average assets (d)		1.27	%		0.80	%		1.29	%		1.03	%
Return on average equity (d)		12.65	%		7.82	%		13.00	%		10.04	%
Return on average tangible equity (b)(d)		15.33	%		9.49	%		15.87	%		12.22	%
Net interest margin (tax equivalent) (b)		3.73	%		3.88	%		3.66	%		3.80	%
Earnings per share - basic (c)	$	1.29		$	0.74		$	5.14		$	3.70
Earnings per share - diluted (c)	$	1.29		$	0.74		$	5.14		$	3.70
Cash dividends paid per share	$	0.440		$	0.426		$	1.742		$	1.653


Asset quality
Allowance for loan and lease losses	$	12,884		$	11,190		$	12,884		$	11,190
Non-performing assets	$	14,393		$	11,845		$	14,393		$	11,845
Allowance for loan and lease losses/total loans		1.19	%		1.12	%		1.19	%		1.12	%
Non-performing assets to total loans		1.33	%		1.18	%		1.33	%		1.18	%
Net charge-offs to total loans (d)		0.05	%		0.02	%		0.02	%		0.03	%


Equity
Book value per share (c)	$	40.85		$	37.60		$	40.85		$	37.60
Tangible Book value per share (b) (c)	$	33.74		$	30.43		$	33.74		$	30.43
Market Value (Last trade of period)	$	55.55		$	63.00		$	55.55		$	63.00
Common shares outstanding		3,504,596			3,486,874			3,504,596			3,486,874
Number of shares used in computation - basic (c)		3,498,402			3,517,436			3,505,218			3,515,638
Number of shares used in computation - diluted (c)		3,498,565			3,517,849			3,507,206			3,517,362


Other
Total Risk Based Capital Ratio (a)		13.42	%		13.20	%		13.42	%		13.20	%
Tier 1 Risk Based Capital Ratio (a)		12.18	%		12.04	%		12.18	%		12.04	%
Common Equity Tier 1 Risk Based Capital Ratio (a)		11.47	%		11.27	%		11.47	%		11.27	%
Leverage Ratio		9.15	%		9.18	%		9.15	%		9.18	%
Average Full Time Equivalent Employees		258.7			251.6			261.3			252.8
Loan to Deposit Ratio		91.29	%		90.55	%		91.29	%		90.55	%

Balance Sheet Highlights	December 31		December 31
	2018		2017

Assets	$	1,430,712	$	1,361,886
Investment securities		241,526		254,782
Loans (net of unearned income)		1,081,883		1,000,525
Allowance for loan losses		12,884		11,190
Deposits		1,185,156		1,104,943
Stockholders' Equity		139,229		129,011

(a) Presented as projected for December 31, 2018 and actual for the remaining period
(b) See reconcilation of GAAP and Non-GAAP financial measures at the end of the press release
(c) Prior period amounts were adjusted to reflect stock dividends.
(d) Annualized for the three month period

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)

	December 31			December 31
(in thousands except share data)	2018			2017
ASSETS:
Cash and due from banks:
Noninterest-bearing	$	15,327		$	16,347
Interest-bearing		1,470			2,170
Total cash and cash equivalents		16,797			18,517

Interest bearing time deposits with other banks		15,498			10,283

Equity securities		516			-

Available-for-sale securities		241,010			254,782

Loans held for sale		1,127			1,439

Loans (net of allowance for loan losses: $12,884 at December 31, 2018 and
$11,190 at December 31, 2017)		1,068,999			989,335

Premises and equipment		16,273			16,523
Accrued interest receivable		4,452			4,196
Goodwill		23,296			23,296
Bank owned life insurance		27,505			26,883
Other intangibles		1,623			1,953
Other assets		13,616			14,679

TOTAL ASSETS	$	1,430,712		$	1,361,886

LIABILITIES:
Deposits:
Noninterest-bearing	$	179,971		$	171,840
Interest-bearing		1,005,185			933,103
Total deposits		1,185,156			1,104,943
Borrowed funds		91,194			114,664
Accrued interest payable		1,076			897
Other liabilities		14,057			12,371
TOTAL LIABILITIES		1,291,483			1,232,875
STOCKHOLDERS' EQUITY:
Preferred Stock $1.00 par value; authorized
3,000,000 shares; none issued in 2018 or 2017		-			-
Common stock
$1.00 par value; authorized 25,000,000 shares at December 31, 2018 and 15,000,000 at
December 31, 2017: issued 3,904,212 at December 31, 2018 and 3,869,939
at December 31, 2017		3,904			3,870
Additional paid-in capital		53,099			51,108
Retained earnings		99,727			89,982
Accumulated other comprehensive loss		(3,921	)		(3,398	)
Treasury stock, at cost: 399,616 at December 31, 2018 and 383,065 shares
at December 31, 2017		(13,580	)		(12,551	)
TOTAL STOCKHOLDERS' EQUITY		139,229			129,011
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	1,430,712		$	1,361,886

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
	Three Months Ended						Year Ended
	December 31,						December 31,
(in thousands, except per share data)	2018			2017			2018			2017
INTEREST INCOME:
Interest and fees on loans	$	13,470		$	11,447		$	50,458		$	42,127
Interest-bearing deposits with banks		101			57			319			186
Investment securities:
Taxable		1,107			754			3,790			3,095
Nontaxable		318			557			1,744			2,414
Dividends		92			80			447			271
TOTAL INTEREST INCOME		15,088			12,895			56,758			48,093
INTEREST EXPENSE:
Deposits		2,215			1,227			6,910			4,625
Borrowed funds		630			432			2,664			1,214
TOTAL INTEREST EXPENSE		2,845			1,659			9,574			5,839
NET INTEREST INCOME		12,243			11,236			47,184			42,254
Provision for loan losses		625			800			1,925			2,540
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		11,618			10,436			45,259			39,714
NON-INTEREST INCOME:
Service charges		1,212			1,133			4,667			4,456
Trust		157			159			705			755
Brokerage and insurance		219			176			790			635
Gains on loans sold		80			195			382			578
Equity security gains (losses), net		(9	)		-			-			-
Available for sale security gains (losses), net		(11	)		831			(19	)		1,035
Earnings on bank owned life insurance		155			161			622			660
Other		174			157			588			537
TOTAL NON-INTEREST INCOME		1,977			2,812			7,735			8,656
NON-INTEREST EXPENSES:
Salaries and employee benefits		4,843			4,625			19,094			17,655
Occupancy		520			509			2,126			1,988
Furniture and equipment		142			159			536			603
Professional fees		652			411			1,925			1,299
FDIC insurance		90			90			417			385
Pennsylvania shares tax		(15	)		(62	)		835			705
Amortization of intangibles		72			74			296			297
Merger and acquisition		-			65			-			165
ORE expenses		66			140			158			395
Other		1,865			1,699			6,170			5,822
TOTAL NON-INTEREST EXPENSES		8,235			7,710			31,557			29,314
Income before provision for income taxes		5,360			5,538			21,437			19,056
Provision for income taxes		845			2,934			3,403			6,031
NET INCOME	$	4,515		$	2,604		$	18,034		$	13,025

PER COMMON SHARE DATA:
Net Income - Basic	$	1.29		$	0.74		$	5.14		$	3.70
Net Income - Diluted	$	1.29		$	0.74		$	5.14		$	3.70
Cash Dividends Paid	$	0.440		$	0.426		$	1.742		$	1.653

Number of shares used in computation - basic		3,498,402			3,517,436			3,505,218			3,515,638
Number of shares used in computation - diluted		3,498,565			3,517,849			3,507,206			3,517,362

CITIZENS FINANCIAL SERVICES, INC.
QUARTERLY CONDENSED, CONSOLIDATED INCOME STATEMENT INFORMATION
(UNAUDITED)
(in thousands, except share data)				Three Months Ended,
	Dec 31			Sept 30			June 30,		March 31,		Dec 31
	2018			2018			2018		2018		2017
Interest income	$	15,088		$	14,259		$	14,028	$	13,383	$	12,895
Interest expense		2,845			2,489			2,277		1,963		1,659
Net interest income		12,243			11,770			11,751		11,420		11,236
Provision for loan losses		625			475			325		500		800
Net interest income after provision for loan losses		11,618			11,295			11,426		10,920		10,436
Non-interest income		1,997			2,022			1,835		1,900		1,981
Investment securities gains (losses), net		(20	)		(12	)		7		6		831
Non-interest expenses		8,235			7,788			7,702		7,832		7,710
Income before provision for income taxes		5,360			5,517			5,566		4,994		5,538
Provision for income taxes		845			936			875		747		2,934
Net income	$	4,515		$	4,581		$	4,691	$	4,247	$	2,604
Earnings Per Share Basic	$	1.29		$	1.31		$	1.34	$	1.21	$	0.74
Earnings Per Share Diluted	$	1.29		$	1.31		$	1.34	$	1.21	$	0.74

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED AVERAGE BALANCES, INTEREST, YIELDS AND RATES, AND NET INTEREST MARGIN ON A FULLY TAX-EQUIVALENT BASIS
(UNAUDITED)
	Three Months Ended December 31,
	2018							2017
	Average				Average			Average				Average
	Balance (1)		Interest		Rate			Balance (1)		Interest		Rate
(dollars in thousands)	$				$	%		$				$	%
ASSETS
Interest-bearing deposits at banks		9,294		6		0.26			8,408		3		0.14
Interest bearing time deposits at banks		14,997		95		2.50			10,146		54		2.09
Investment securities		237,342		1,602		2.70			254,277		1,678		2.64
Loans: (2)(3)(4)
Residential mortgage loans		215,418		2,859		5.29			207,692		2,692		5.14
Construction loans		32,393		406		4.97			16,864		188		4.43
Commercial Loans		389,705		5,338		5.43			347,492		4,838		5.52
Agricultural Loans		323,191		3,826		4.70			255,484		2,784		4.32
Loans to state & political subdivisions		102,409		1,066		4.13			102,248		1,091		4.23
Other loans		9,610		184		7.61			10,158		203		7.91
Loans, net of discount (2)(3)(4)		1,072,726		13,679		5.06			939,938		11,796		4.98
Total interest-earning assets (3)		1,334,359		15,382		4.57			1,212,769		13,531		4.43
Cash and due from banks		6,751							7,142
Bank premises and equipment		16,253							16,583
Other assets		69,318							66,145
Total non-interest earning assets		92,322							89,870
Total assets		1,426,681							1,302,639
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts		327,144		515		0.62			326,133		310		0.38
Savings accounts		201,903		137		0.27			181,784		49		0.11
Money market accounts		171,149		527		1.22			130,895		181		0.55
Certificates of deposit		298,395		1,036		1.38			260,090		687		1.05
Total interest-bearing deposits		998,591		2,215		0.88			898,902		1,227		0.54
Other borrowed funds		93,440		630		2.67			97,867		432		1.75
Total interest-bearing liabilities		1,092,031		2,845		1.03			996,769		1,659		0.66
Demand deposits		178,479							157,482
Other liabilities		13,410							15,159
Total non-interest-bearing liabilities		191,889							172,641
Stockholders' equity		142,761							133,229
Total liabilities & stockholders' equity		1,426,681							1,302,639
Net interest income (3)				12,537							11,872
Net interest spread (5)						3.54	%						3.77	%
Net interest income as a percentage
of average interest-earning assets (3)						3.73	%						3.88	%
Ratio of interest-earning assets
to interest-bearing liabilities						122	%						122	%

(1) Averages are based on daily averages.
(2) Includes loan origination and commitment fees.
(3) Tax exempt interest revenue is shown on a tax equivalent basis for proper comparison using a statutory federal income tax rate
of 21% for 2018 and 34% for 2017. See reconciliation of GAAP to Non-GAAP measures at the end of the press release
(4) Income on non-accrual loans is accounted for on a cash basis, and the loan balances are included in interest-earning assets.
(5) Interest rate spread represents the difference between the average rate earned on interest-earning assets
and the average rate paid on interest-bearing liabilities.

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED AVERAGE BALANCES, INTEREST, YIELDS AND RATES, AND NET INTEREST MARGIN ON A FULLY TAX-EQUIVALENT BASIS
(UNAUDITED)
	Year Ended December 31,
	2018							2017
	Average				Average			Average				Average
	Balance (1)		Interest		Rate			Balance (1)		Interest		Rate
(dollars in thousands)	$				$	%		$				$	%
ASSETS
Interest-bearing deposits at banks		8,929		20		0.22			8,790		15		0.17
Interest bearing time deposits at banks		12,734		299		2.35			8,346		171		2.05
Investment securities		256,719		6,445		2.51			278,951		7,023		2.52
Loans: (2)(3)(4)
Residential mortgage loans		214,458		11,205		5.22			206,321		10,660		5.17
Construction loans		25,698		1,235		4.80			24,299		1,040		4.28
Commercial Loans		388,037		20,611		5.31			329,767		17,525		5.31
Agricultural Loans		305,003		13,638		4.47			214,200		9,251		4.32
Loans to state & political subdivisions		101,496		3,759		3.70			98,427		4,146		4.21
Other loans		9,558		737		7.71			10,341		823		7.96
Loans, net of discount (2)(3)(4)		1,044,250		51,185		4.90			883,355		43,445		4.92
Total interest-earning assets (3)		1,322,632		57,949		4.38			1,179,442		50,654		4.29
Cash and due from banks		6,807							6,774
Bank premises and equipment		16,338							16,799
Other assets		54,722							55,910
Total non-interest earning assets		77,867							79,483
Total assets		1,400,499							1,258,925
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts		326,040		1,642		0.50			323,105		1,139		0.35
Savings accounts		192,727		323		0.17			179,557		191		0.11
Money market accounts		164,916		1,618		0.98			127,888		650		0.51
Certificates of deposit		276,213		3,327		1.20			261,758		2,645		1.01
Total interest-bearing deposits		959,896		6,910		0.72			892,308		4,625		0.52
Other borrowed funds		117,912		2,664		2.26			68,536		1,214		1.77
Total interest-bearing liabilities		1,077,808		9,574		0.89			960,844		5,839		0.61
Demand deposits		171,353							153,523
Other liabilities		12,647							14,802
Total non-interest-bearing liabilities		184,000							168,325
Stockholders' equity		138,691							129,756
Total liabilities & stockholders' equity		1,400,499							1,258,925
Net interest income (3)				48,375							44,815
Net interest spread (5)						3.49	%						3.68	%
Net interest income as a percentage
of average interest-earning assets (3)						3.66	%						3.80	%
Ratio of interest-earning assets
to interest-bearing liabilities						123	%						123	%

(1) Averages are based on daily averages.
(2) Includes loan origination and commitment fees.
(3) Tax exempt interest revenue is shown on a tax equivalent basis for proper comparison using a statutory federal income tax rate
of 21% for 2018 and 34% for 2017. See reconciliation of GAAP to Non-GAAP measures at the end of the press release
(4) Income on non-accrual loans is accounted for on a cash basis, and the loan balances are included in interest-earning assets.
(5) Interest rate spread represents the difference between the average rate earned on interest-earning assets
and the average rate paid on interest-bearing liabilities.

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED SUMMARY OF LOANS BY TYPE; NON-PERFORMING ASSETS; and ALLOWANCE FOR LOAN LOSSES
(UNAUDITED)
(Excludes Loans Held for Sale)
(In Thousands)
	December 31,			September 30,			June 30,			March 31,			December 31,
	2018			2018			2018			2018			2017
Real estate:
Residential	$	215,305		$	213,255		$	213,242		$	215,349		$	214,479
Commercial		319,265			312,982			309,571			320,381			308,084
Agricultural		284,520			280,569			262,691			248,710			239,957
Construction		33,913			30,262			27,901			22,239			13,502
Consumer		9,858			9,702			9,740			9,672			9,944
Other commercial loans		74,118			72,219			75,002			74,930			72,013
Other agricultural loans		42,186			39,917			42,131			40,396			37,809
State & political subdivision loans		102,718			101,425			99,922			100,061			104,737
Total loans		1,081,883			1,060,331			1,040,200			1,031,738			1,000,525
Less allowance for loan losses		12,884			12,383			11,941			11,587			11,190
Net loans	$	1,068,999		$	1,047,948		$	1,028,259		$	1,020,151		$	989,335

Past due and non-performing assets

Total Loans past due 30-89 days and still accruing	$	3,308		$	3,127		$	5,143		$	5,660		$	3,489

Non-accrual loans	$	13,724		$	14,530		$	10,931		$	11,433		$	10,171
Loans past due 90 days or more and accruing		68			302			1,046			429			555
Non-performing loans	$	13,792		$	14,832		$	11,977		$	11,862		$	10,726
OREO		601			628			471			952			1,119
Total Non-performing assets	$	14,393		$	15,460		$	12,448		$	12,814		$	11,845



	3 Months			3 Months			3 Months			3 Months			3 Months
	Ended			Ended			Ended			Ended			Ended
Analysis of the Allowance for loan Losses	December 31,			September 30,			June 30,			March 31,			December 31,
(In Thousands)		2018			2018			2018			2018			2017
Balance, beginning of period	$	12,383		$	11,941		$	11,587		$	11,190		$	10,447
Charge-offs		(140	)		(48	)		(61	)		(116	)		(73	)
Recoveries		16			15			90			13			16
Net (charge-offs) recoveries		(124	)		(33	)		29			(103	)		(57	)
Provision for loan losses		625			475			325			500			800
Balance, end of period	$	12,884		$	12,383		$	11,941		$	11,587		$	11,190

CITIZENS FINANCIAL SERVICES, INC.
Reconciliation of GAAP and Non-GAAP Financial Measures
(Dollars in thousands, except per share data)

	As of
	December 31, 2018
	2018			2017
Tangible Equity
Stockholders' Equity - GAAP	$	139,229		$	129,011
Accumulated other comprehensive loss		(3,921	)		(3,398	)
Intangible Assets		24,919			25,249
Non-GAAP Tangible Equity		118,231			107,160
Shares outstanding adjusted for June 2018 stock Dividend		3,504,596			3,521,146
Tangible Book value per share	$	33.74		$	30.43



	As of
	December 31, 2018
		2018			2017
Tangible Equity per share
Stockholders' Equity - GAAP	$	39.73		$	36.64
Adjustments for accumulated other comprehensive loss		(1.12	)		(0.96	)
Book value per share		40.85			37.60
Adjustments for intangible assets		7.11			7.17
Tangible Book value per share	$	33.74		$	30.43


	Three Months Ended
	December 31,
Reconciliation of net interest income on fully taxable equivalent basis		2018			2017
Total interest income	$	15,088		$	12,895
Total interest expense		2,845			1,659
Net interest income		12,243			11,236
Tax equivalent adjustment		294			636
Net interest income (fully taxable equivalent)	$	12,537		$	11,872


	Year Ended
	December 31,
Reconciliation of net interest income on fully taxable equivalent basis		2018			2017
Total interest income	$	56,758		$	48,093
Total interest expense		9,574			5,839
Net interest income		47,184			42,254
Tax equivalent adjustment		1,191			2,561
Net interest income (fully taxable equivalent)	$	48,375		$	44,815

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CITIZENS FINANCIAL SERVICES INC Reports